An avid reader called us here in the Hoboken,N.J., office of National Underwriter and said, "I live inFlorida. Why is it that every questionable life insurance andannuity sales practice seems to start or take off here?"

Our Hoboken office happens to be a block from the Hudson River,where mobsters made many a soul sleep with the fishes. The city'syoungest mayor ever was sworn into office July 1, 2009. He ran thecity for 22 days before being arrested by the FBI in a corruptionprobe. He is now serving a 24-month sentence in a minimum securityfederal prison.

I went to journalism school near Chicago, where FBI stings areabout as common as rummage sales, and I grew up in Kansas City,Mo., where the citizens take great pride in describing how KansasCity mobsters put the slots in Las Vegas.

It doesn't seem as if Florida could run away with a race to seewhich jurisdiction had the most interesting financial servicesregulatory climate.

But also I spent three years in Vero Beach, Fla., at a time manyresidents were suing over real estate limited partnerships that hadgone bad, living in shoddy new condos that were nothing like whatthe developers had promised, and discovering that their lifeinsurance premiums were not going to vanish. The old NationalAssociation of Securities Dealers, Washington, often seemed to listat least one broker from the area in its monthly disciplinaryaction report.

So, is Florida really different, or is there ascent of something fishy wherever we care to try to smell it?

Sheryl Waters, a certified public accountant and a certifiedfraud examiner at Waters CPA Group P.A., Tampa, Fla., a firm thathelps some clients set up life insurance and annuity arrangementsand helps others untangle what she believes to be unsuitablearrangements, says she thinks Florida really is different."Everything weird starts in Florida," Waters said.

She thinks most of the weirdness has to do with consumers andproduct sellers who have moved to Florida, not with anything allthat unusual about the culture of Florida itself. And she doubtsthat many of the people who sell bad arrangements start outconsciously trying to do anything wrong. Instead, she said, shethinks poorly educated, poorly trained people who have spent toolittle time in church are making promises that the products theysell are unlikely to keep. They do this partly to meet unrealisticsales quotas, and partly because they believe what they aresaying.

"It would be funny if it wasn't so overwhelming," Waterssaid.

Mason Dinehart III, president of Financial Education NetworkDevelopment, Los Angeles, a firm that provides expert witnessservices during securities arbitration proceedings, said hebelieves any geographic variations in the financial servicesregulatory climate have to do mainly with demographics. "You lookfor any concentration of retirees," Dinehart said.

Frank Darras, an Ontario, Calif., lawyer, represents consumersin cases involving disability insurance and long term careinsurance. His disability insurance clients come from all over thecountry. "I see more claims coming out of places that are warm," hesays of the long term insurance market.

Florida Insurance Commissioner Kevin McCarty, who was appointedto the commissioner's post by Gov. Jeb Bush (R) in 2003, saidFlorida has a high concentration of older residents and a historyof being a place where some have gone to try to take advantage ofothers.

But Florida also has some of the most stringentinsurance laws in the country, McCarty says, and Floridaregulators have helped develop models used throughout the countryto handle issues such as travel underwriting.

Advisors who represent consumers in conflicts with insurers andinsurance marketers said they believe the overall quality of U.S.insurance regulation is uneven. But they all agreed that theFlorida Office of Insurance Regulation has made serious efforts tohelp consumers. For instance, Florida regulators have "clamped downon the annuity business," Waters said.

Eli Lehrer, director of the Center on Finance, Insurance andReal Estate at the Heartland Institute, Chicago, said he disagreeswith Commissioner McCarty on a number of important issues. "But Ithink he's smart, competent and ethical," Lehrer said.

Outside Florida, most state insurance commissioners seem to begood at what they do, despite rare reports of outright bribe-takingand somewhat more frequent reports of enthusiastic enjoyment ofcorporate hospitality, Lehrer noted. "In general," he said, "theproblems are not with corruption, but with poor regulation and poorbusiness practices."

Birny Birnbaum, executive director of the Center for EconomicJustice, Austin, Texas, said he believes commissioners and otherregulators in Florida, Wisconsin and some other states have takentheir responsibility to protect consumers seriously.

But, too often, "they come from the industry and they go back tothe industry," said Birnbaum, who once worked for the TexasDepartment of Insurance and has represented consumers inproceedings at the National Association of Insurance Commissioners(NAIC), Kansas City, Mo. As a result, regulators who want to getout of the public sector may feel as if they have no goodalternative to working in the industry.

One sticking point with insurance regulation isthat many major problems have surfaced through trial lawyers, mediareports or investigations by state attorneys general rather than asa result of insurance department exams and investigations, Birnbaumsaid.

Connecticut Insurance Commissioner Thomas Sullivan, chair of theLife Insurance and Annuities Committee at the NAIC, said hebelieves life and annuity policies have mostly converged. Anylingering differences in the nature of regulation tend to be duemore to agency's resources and its level of aggressiveness than topolicy differences, he said.

The challenges for anyone trying to address concerns about lifeand annuity sales practices include philosophical conflicts. Forinstance, there is the eternal difference of opinion about whereregulators should draw the line between when an agent is engagingin misleading hype and when he or she is merely being toooptimistic. And there is also the deep divide between the plannersuspicious of any life insurance arrangement other than term lifecombined with low-cost index funds and the life agent who hasconcluded that it was nice to have had customers in products withprincipal guarantees over the past five years.

Another challenge is the difficulty of findingapples-to-apples enforcement data. Florida, for example,reported starting many more actions over concerns about producersthan other states did in 2009. But states use a variety ofapproaches to handling and reporting producer action data.

The Financial Industry Regulatory Authority (FINRA), Washington,works with producers licensed as life insurance agents when it isregulating members' sales of variable annuity and variable lifeproducts. But FINRA declined to make a representative available todiscuss regional variations in the variable product market.

Although Birnbaum respects some appointed insurancecommissioners, he believes that elected commissioners are lesslikely to move into a commissioner post straight from the insuranceindustry.

Darras thinks one sign that an insurance department has theresources to do a good job is a dedicated fraud unit. Insurers saythe units reduce the incidence of fraud against them, and the unitsalso seem to help consumers.

Jack Waymire of Paladin Registries & Directories Inc.,Sacramento, Calif., said he would like to see insurance regulatorsprovide detailed, standardized producer data that would be similarto FINRA broker-dealer data. Today, "there's a lot of variationfrom state to state, which is unfortunate," said Waymire, whosefirm runs an advisor directory.

As for Birnbaum, he would like to see states release the kind ofdetailed, ZIP-code level transaction data released by the mortgagelending industry. "Insurance regulators are essentially in thestone age in terms of data collection and data analysis," hesaid.

To address long-standing criticism of the state-based insuranceregulatory regime, especially given its inability to prevent thefailure of AIG, the Obama administration and Democrats in Congressincluded provisions creating a Federal Insurance Office (FIO) andan Office of Financial Research (OFR) at the U.S. TreasuryDepartment in the new Dodd-Frank Wall Street Reform and ConsumerProtection Act.

AIG's problems did not stem from their insurance operations, butcritics contend that the 50 different insurance regimes could notaccurately compare data with each other, should any one regulatorhave chosen to look more deeply into AIG's books prior to itsdramatic collapse. A single federal system, ideally, would addressthat problem, but from the beginning, state regulators opposedit.

As the Dodd-Frank Act went through Congress, state regulatorssuccessfully fought off lawmakers' efforts to give the FIO theauthority to handle core regulatory functions such as produceroversight. But the FIO still is supposed to gather comprehensiveinformation about the insurance market, and the OFR is supposed touse FIO research to produce portions of a financial companyreference database and a financial instrument referencedatabase.

The FIO will not have the power to issue subpoenas, butthe OFR will.

Sullivan said he believes the FIO will focus on collectinginsurance industry data relating to insurer solvency and will notbe collecting market conduct or enforcement data.

Another new agency created by the Dodd-Frank Act, the ConsumerFinancial Protection Bureau (CFPB), will have no ability toexercise any power over a person regulated by a state insuranceregulator. In theory, it seems possible that the CFPB and a CFPBarm, the Office of Financial Protection for Older Americans, coulduse data from outside sources, such as voluntary surveys, the FIOor commercial databases, to prepare reports that might refer toinsurance products. But Sullivan said he believes Congress clearlyprevented the CFPB from having anything to do with insurance andthat even preparing reports about insurance would exceed the scopeof its authority.

So what does this mean for states like Florida, whereconventional wisdom contends that, despite regulatory efforts, thestate is a breeding ground for contentious sales practices? Forthose hoping for a federal fix, there is plenty more waiting to bedone. Meanwhile, the state-based system seems to have dodged abullet, but it might only be a matter of time before federalregulators increasingly decide to take trouble spots like Floridaand other states out of the locals' hands.

Allison Bell is Associate Editor ofNational Underwriter's Life & Health/FinancialServices edition.